ACTION ALERT – SB140 – Internet Sales Tax – Goes to Full Senate Vote

The Internet Sales Tax, Senate Bill 140 by Sen. Jake Files (R-Fort Smith), has passed out of the Senate Revenue and Tax committee. This bill is estimated to bring in over $100 million in new revenue for state government with internet purchases. Below is information on the bill, and at the bottom of the article is contact information on Senators who will be voting on this bill as early as Monday, February 6. Contact your Senator and tell them to vote NO on SB140– the new internet sales tax.

This bill will:

Implement the full 6.5% sales tax on internet purchases.

Violate the U.S. Constitution and force taxpayers to fund a test case to challenge Supreme Court precedence.

Provide revenue for state government services not used in an internet transaction.

Take more money from the consumer-taxpayer and give it to the government.

What the Bill Does – Implements 6.5% Sales Tax on internet purchases

The bill would place the remittance of the tax on the out of state seller after they charge it to the consumer with online purchases. The tax would apply to those with gross revenues from sales in excess or $100,000 OR 200 transactions. There is no dollar size associated with the transaction language. Micro-transactions would therefore seem to apply.

To put this in perspective, purchases on sites such as Amazon would now have the state’s full 6.5% sales tax levied against their purchases under this bill. This would hit consumers of all kinds, and especially younger generations who make many of their purchases online. Over time and over many purchases consumers will have less money and the government will have more.

This bill violates the U.S. Constitution and forces taxpayers to fund a test case to see if the state can get more money from the taxpayer than they currently receive.

The intent and findings posted in the bill admit this is currently unconstitutional as it would tax out of state businesses who do not have a “nexus”, or presence, in the state. See Quill Corp. v. North Dakota, 504 U.S. 298 (1992).Under the Quill doctrine, a presence or nexus in the state is a fundamental requirement before a state can levy a sales tax on a purchase. Thus, the reason online purchases through places like Walmart or Target have a sales tax – they have a physical presence in the state. A full analysis on the constitutionality of this bill was covered in a previous Conduit for Action article HERE.

The bill states “. . . [T]he General Assembly recognizes that the enactment of this law places remote sellers in a complicated position, precisely because existing constitutional doctrine calls this act into question.” It appears, as written, that this proposed law may serve as a “test case” to test the constitutional limits of taxing a person from outside the state. The bill seems to indicate a declaratory judgment suit would be filed almost immediately if this bill is passed. Should taxpayers be forced fund a test case to see whether their government can get around established constitutional law to find a way to get more money from them than they are not already receiving?

A similar bill that was passed in South Dakota is already facing litigation. This bill would force a duplicative lawsuit and force taxpayers to fund a test case with the effect of them paying more money into the state.

Arguments for the Bill

Supporters of the law say that this makes it fairer for brick and mortar stores such as Walmart who must remit sales tax. However, that is the beauty of the free market at work. Some people make purchases at Walmart as they want to see and feel the purchases they are making. They are responding to that incentive and are willing to pay the sales tax applied. However, other innovators have found a way to provide products and services through the internet. Others have responded to these incentives and decided to make purchases online.

This is not a loophole, this is an affront to the rule of law.There are already laws taxing these purchases through a use tax on these purchases. If the state wants to have an enforcement mechanism imposed regarding the use tax, then pursue that. It is likely that would be politically unpopular.

So, to be clear, this is NOT an already existing tax and we are just enforcing it or closing a loophole. This is a separate, new sales tax. The current tax is a separate use tax, not a sales tax.

What Is the Actual Purpose of a Sales Tax

Also, one should consider the purpose for a sales tax. A sales tax is levied against persons in a specific location to make sure persons benefitting from local government services are paying towards those benefits. With online purchases, however, the seller is not in the local and is therefore not benefitting from any local government benefits. The box stores in a locale benefit from the roads, sidewalks, emergency and police services, and other local government benefits from which an internet company in another state does not benefit. Amazon pays sales tax in places where they have distribution centers and heavy taxes in their home state of Washington. People argue they use the roads for shipping, but in fact they are paying for shipping costs to local companies and the excise tax on fuel, tires, etc. is being paid through that process.

The bill argues the money is needed to support infrastructure and state and local services in the state.

Consider this though: a private person is at their private home, using their private computer with their private internet making a private purchase from a private company. Nowhere in that transaction does the government provide any service in which they should be paid a tribute through a sales tax. The government coming into that process to tax it will only stifle further innovation.

Conclusion

Do we really want the government to come in and get their tentacles attached to our internet usage and purchases? It would seem to be a slippery slope to not only tax purchases but internet use in general down the road. Supporters of this bill say it is a way to cut taxes in the future. Many promote “revenue-neutral” bills, but this is a revenue raising bill possibly exceeding $100 million which currently includes no tax cut. If the state had no income tax whatsoever, this sales tax conversation would be quite different.

Contact Your Senator. Tell them to vote NO on SB140- Internet Sales Tax